In the days leading up to New Year’s Eve, we often reflect on the year gone by, but we should also look forward to the new year and review our personal finances of the past year. It’s good to remember that you can always try again next year to keep your New Year’s financial resolutions.
Take these steps in the upcoming year for a better financial future.
Find Out Your Net Worth
It’s a good idea to estimate your financial worth at the start of the new year if you haven’t already done so. In order to assess your financial health and keep your financial resolutions, it is important to calculate your net worth.
After calculating this, you will be more aware of the resolutions that need to be made. You can create a clearer picture of where you are prioritizing your current spending and saving by closely examining your assets and liabilities.
Recalculating your net worth every year is a good idea. This will help you stay on top of your financial goals and correct any mistakes before they become overwhelming.
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Reset Your Retirement Accounts
Consider budgeting a set amount every month to contribute to your 401(k), 403(b), or 457 retirement plan sponsored by your employer. Considering contributing to an individual retirement account (IRA) is also a good idea if you can afford to do so.
Employer Plans
If your workplace offers a 401(k), 403(b), or 457 plan, you should contribute as much as you can afford, up to the maximum allowed. Those over the age of 50 can make additional catch-up contributions in addition to the regular limits if they are 50 by December 31 next year.
It is recommended that you contribute at least enough to your employer’s plan to earn any matching contributions your employer may offer.
Do you work for yourself? SEP IRAs, profit-sharing plans, and independent 401(k)s can all be contributed to based on your income. The contribution limit for independent 401(k)s increases if you’re 50 or older by December 31, helping you save even more.
Investing more than you can afford could result in you incurring debt to cover everyday expenses, so be realistic about how much you can afford to save. Budget your retirement plan contributions into your regular budget to determine how much you can save each period.
Update Your Savings Goals
It can be tempting to create easy access to your funds. If you are like most people, you will spend money you can easily access. Don’t forget to transfer savings amounts from your checking account to a dedicated savings or investment account so you can achieve your goals. You can even set up an automatic deposit from your paycheck into savings. The money you have managed to set aside will be more difficult to spend that way.
Add Clearing Debts to Your Financial Resolutions
You might consider adding money to your retirement nest egg, your children’s education fund, or putting toward a down payment on a new home for 2023. It’s also a good idea to reset your plans for repaying personal loans, debts, and home mortgages.
Rebalance Your Portfolio
There are always ups and downs in the stock market. Some sectors overperform, and others underperform. Most of the sectors that did well last year are unlikely to repeat their performance this year. 2022 was also a pretty grim year for most. As you rebalance your portfolio, you lock in gains from the best-performing sectors and purchase shares in sectors that have lagged behind last year’s winners.
Reduce credit card debt
Calculate how much you can realistically pay off on your credit cards each year. While you’re paying your debt, avoid charging additional purchases to those cards. Consider whether paying off high-interest credit card debts would be more beneficial to you than adding to your savings if you have high-interest credit card debt. If you have a credit card balance, you may also want to consider transferring it to a new card with a lower interest rate or even a 0% promotional rate.
Ensure Your Credit Report is Accurate
Take steps to repair any negative aspects of your credit report by checking it regularly. It makes no sense to not review your credit report, especially since errors are not uncommon, since you’re entitled to three free ones every year. The amount of money you can save may be adversely affected if your credit report is poor.
Review Your Life Insurance and Disability Insurance
Your life insurance and disability insurance needs will continue to change as you progress through your career. Think about how much coverage you need, and compare it with the coverage your employer offers.
Maintaining Your Financial Resolutions
When you’re tempted to give up on your resolution, set realistic targets and remind yourself why you made it in the first place, having part of your paycheck automatically deposited into a savings account or moving funds from your checking to a separate account that’s not easily accessible can also help you avoid temptation.
Set Aside a Maximum Amount Each Month
Your circumstances will determine what is best for you. It should become clearer how much you can set aside once you work out how much is coming in and how much you spend and owe.
There may not be much wiggle room with some expenses, such as mortgages and utilities, but there may be ways to reduce others. Saving at least 20% of your income each month is generally recommended by financial experts.
You can use this opportunity to restate your financial resolutions simply and clearly for the new year. Avoid setting too many financial goals or ones that are unrealistic. You may not be able to complete any if you do not take action.
In order to make necessary adjustments, maintain a checklist throughout the year to track progress. Depending on the goals you’ve set, you may want to also speak with a financial advisor.
